Qualified Opportunity Zones DesignatedThe Treasury and the IRS have designated Opportunity Zones in 15 states and three territories. Private investments in these specific Qualified Opportunity Zones get preferential tax treatment under th...

The House on April 18 approved the two largest bills of a bipartisan IRS reform package. On April 17, the House approved seven other bills, by voice vote, which are also part of the larger bipartisan package. Its aim is to restructure the IRS for the first time in 20 years. The entire package of bills was approved by the Ways and Means Committee several weeks ago.

The House on April 18 approved the two largest bills of a bipartisan IRS reform package. On April 17, the House approved seven other bills, by voice vote, which are also part of the larger bipartisan package. Its aim is to restructure the IRS for the first time in 20 years. The entire package of bills was approved by the Ways and Means Committee several weeks ago.

"Congress this week, the House this week, will undertake the first major reform of the IRS in more than two decades," House Ways and Means Committee Chairman Kevin Brady, R-Tex., said in an April 17 leadership press briefing. "A new tax code really demands a new tax collector – and, Republicans and Democrats together, are launching reforms that create a ‘Taxpayer First’ IRS."

In an April 18 statement, Brady further remarked that "[w]ith this package, we are taking a monumental step in redesigning the IRS for first time in 20 years, refocusing the agency to live up to its mission of quality service, and reining in its enforcement powers to prevent future abuse."

IRS ReformThe Taxpayer First Act (HR 5444), which is the lead bill, passed by a 414-to-3 vote. HR 5444, proposes changes to the IRS’s appeals process and customer service programs, and would implement other organizational restructuring.

In addition, the House approved seven bills by unanimous consent on April 17: HR 2901, HR 5440, HR 5438, HR 5446, HR 5437, HR 5439, and HR 5443. The measures include proposals to establish a single point of contact for tax-related identity theft victims, expand the use of Low-Income Taxpayer Clinics (LITCs), and require electronic filing for certain tax-exempt organizations, among other things.

The IRS reform package has no effect on revenue, according to the Joint Committee on Taxation (JCT) ( JCX-10-18).

SenateHow the IRS reform bills will fare in the Senate remains to be seen. Although Senate Finance Committee (SFC) Chairman Orrin G. Hatch, R-Utah, has commended the House’s efforts toward restructuring the IRS, no word has been released as for when the Senate will consider the measure.

The IRS provided an additional day for taxpayers to file and pay their taxes, following system issues that surfaced early on April 17. Individuals and businesses with a filing or payment due date of April 17 had until midnight on Wednesday, April 18, to file returns and pay taxes. Taxpayers did not need to take extra actions to receive the extra time.

The IRS provided an additional day for taxpayers to file and pay their taxes, following system issues that surfaced early on April 17. Individuals and businesses with a filing or payment due date of April 17 had until midnight on Wednesday, April 18, to file returns and pay taxes. Taxpayers did not need to take extra actions to receive the extra time.

System IssuesThe IRS encountered system issues during the morning of Tuesday, April 17. While the system was down, taxpayers could file their tax returns electronically through software providers and Free File. Taxpayers using paper to file and pay their taxes at the deadline were not affected by the system issue.

"Currently [on April 17], certain IRS systems are experiencing technical difficulties. Taxpayers should continue filing their tax returns as they normally would," the IRS said in a statement sent to Wolters Kluwer on April 17.

"[T]he IRS apologizes for the inconvenience this system issue caused for taxpayers," said Acting IRS Commissioner David Kautter. "The IRS appreciates everyone’s patience during this period. The extra time will help taxpayers affected by this situation."

One Day ExtensionThe IRS advised taxpayers to continue to file their taxes as normal. Returns filed and taxes paid before midnight on Wednesday, April 18—whether electronically or on paper—would be considered timely. In addition, automatic six-month extensions were available to taxpayers who needed additional time to file.

Up and Running AgainOn April 18, the IRS informed taxpayers that the Service’s processing systems were fully back up and running, and that the system outage had been caused by a hardware issue. The IRS pointed out that as of 9 a.m. Eastern time on April 18, it had accepted more than 14 million tax submissions since processing systems reopened.

"IRS teams worked hard throughout the night," explained Kautter. "The overnight performance means that the IRS is current with all of the tax submissions, and no backlog remains."

The IRS reminded taxpayers that help, including automatic six-month extensions to file, was available at IRS.gov.

The White House and Republican lawmakers are continuing discussions focused on a second round of tax reform, according to President Trump’s top economic advisor. National Economic Council Director Lawrence Kudlow said in an April 5 interview that Trump and House Ways and Means Committee Chairman Kevin Brady, R-Tex., spoke earlier in the week again about a "phase two" of tax reform

The White House and Republican lawmakers are continuing discussions focused on a second round of tax reform, according to President Trump’s top economic advisor. National Economic Council Director Lawrence Kudlow said in an April 5 interview that Trump and House Ways and Means Committee Chairman Kevin Brady, R-Tex., spoke earlier in the week again about a "phase two" of tax reform

Trump and most GOP lawmakers are in agreement that full expensing for business investments and individual tax cuts should be made permanent, according to Kudlow. Those specific tax provisions under the Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97) are currently temporary. "I think you get more bang for the buck on these tax cuts if you do make it permanent," Kudlow said.

Likewise, Trump, while speaking at an April 5 roundtable event in West Virginia, touted the full expensing provision of the TCJA. "I think it’s going to be the greatest benefit of the whole bill," Trump said.

According to Kudlow, there are other ideas being discussed that could also become part of the plan, but he did not elaborate on specifics. "Perhaps, later this year we will see something more concrete," he said.

Looking ForwardTrump also spoke to the tax return filing process changes expected for next year. "Next April, you’re going to, in many cases, [file on] one page, one card…you’ll have a nice simple form next year," Trump said.

To that end, Senate Majority Leader Mitch McConnell, R-Ky., wrote in an April 6 op-ed in Kentucky Today that the current tax return filing process, which includes "complicated paperwork," will soon come to an end. "As a result of the historic overhaul of the federal tax code, this is the last time that you will have to file under the outdated and expensive system that has held our country back for far too long," McConnell wrote.

Democratic ChangesMeanwhile, most Democratic lawmakers continue to criticize the tax law changes under the TCJA. House Minority Leader Nancy Pelosi, D-Calif., said in an April 6 statement that only corporations and the wealthy benefit from the new law. "Powerful special interests are reaping massive windfalls from the GOP tax scam," Pelosi said.

Earlier in the week, while speaking at a tax event in California, Pelosi reportedly said that Democrats would take a bipartisan approach toward revising the TCJA if they regain the House majority in 2019. According to Pelosi, Democrats are interested in creating a tax bill that creates growth and jobs while simultaneously reducing the deficit.

Certain proposed regulations issued by Treasury will now be subject to additional oversight by the Office of Management and Budget (OMB). A Memorandum of Agreement (MOA) between Treasury and OMB released on April 12 specifies terms under which the Office of Information and Regulatory Affairs (OIRA) within OMB will review future tax regulations.

Certain proposed regulations issued by Treasury will now be subject to additional oversight by the Office of Management and Budget (OMB). A Memorandum of Agreement (MOA) between Treasury and OMB released on April 12 specifies terms under which the Office of Information and Regulatory Affairs (OIRA) within OMB will review future tax regulations.

The MOA comes on the heels of recent debate on whether OMB should have increased oversight of Treasury’s tax-related regulations. While some lawmakers have argued for additional oversight of tax rules, others have expressed concern that more oversight will lead to delays in issuing guidance. The subject has been of particular focus on Capitol Hill as Treasury and the IRS prepare to implement the Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97) enacted in December 2017.

Previous MOAA previous agreement adopted in 1983, and reaffirmed in 1993, allowed for OIRA review of some regulations but exempted most tax rules. "The MOA announced today replaces the 1983 agreement with a new review process tailored to tax regulations—it focuses on reducing regulatory burdens while providing timely guidance to taxpayers," according to a Treasury Department news release. Treasury Secretary Steven Mnuchin and OMB Director Mick Mulvaney both praised the MOA in a joint news release, for ensuring clarity and transparency for taxpayers.

Generally, OIRA will have 45 days to review submissions from Treasury, according to the MOA. However, to allow for timely implementation of the TCJA, the Treasury secretary or deputy secretary, with the approval of the OIRA administrator, may designate certain tax rules for expedited release.

Increased OversightUnder the terms of the MOA, tax rules will be subject to OIRA review if they interfere with an action taken by another agency, raise novel legal or policy issues, or have an annual nonrevenue effect on the economy of $100 million or more.

"There may be perfectly good reasons for adding an additional layer of review to finalize Treasury regulations," John Gimigliano, principal-in-charge of federal legislative and regulatory services in the Washington National Tax practice of KPMG LLP, told Wolters Kluwer on April 13. "But speeding up implementation of the new tax law is not one of them. The practical effect of this is that taxpayers will have to wait longer for Treasury to issue interpretations of the new law."

The IRS is already working on implementing tax reform, according to IRS Acting Commissioner David Kautter. Speaking at a Tax Executives Institute event in Washington, D.C., Kautter discussed current IRS efforts toward implementing tax law changes under the Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97).

The IRS is already working on implementing tax reform, according to IRS Acting Commissioner David Kautter. Speaking at a Tax Executives Institute event in Washington, D.C., Kautter discussed current IRS efforts toward implementing tax law changes under the Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97).

"The Tax Cuts and Jobs Act represents the most sweeping change to U.S. tax law since 1986," Kautter said according to his prepared remarks, which were provided to Wolters Kluwer by the IRS. He added that the new law will "involve creating or changing a large number of forms and publications, updating scores of tax processing systems, retraining our workforce and educating the taxpaying public about the changes."

TRIOThe IRS in January created the Tax Reform Implementation Office (TRIO). The TRIO is responsible for establishing and monitoring implementation action plans and ensuring communication with external and internal stakeholders, among other things, according to Kautter. "The TRIO is our tax reform linchpin," he said.

IRS FundingThe IRS was provided $320 million specifically for the implementation of tax reform in the omnibus government spending package that President Trump signed on March 23 ( P.L. 115-141). According to Kautter, more than 70 percent of the IRS funding for tax reform will go toward reprogramming IRS IT systems. Additionally, new forms will need to be developed at a cost of approximately $75,000 per form, and the IRS estimates about 450 products (including forms, instructions and publications) need to be revised. Most of these products need to be updated by the 2019 filing season, which is a "tall order," Kautter said. Additionally, over 1,000 new employees will need to be hired for taxpayer services and for tax reform implementation across the Service, including within the Office of Chief Counsel.

OutreachThe IRS cannot wait for taxpayers to call about the new tax law’s requirements, according to Kautter. "The IRS also needs to be proactive, and provide education and outreach to help taxpayers, tax professionals and other industry partners understand how the law applies to them, and prepare them for the 2019 tax filing season," Kautter said.

The IRS’s Communications and Liaison operation is preparing to start education outreach to increase public awareness of the new tax law’s provisions. The IRS will be conducting events across the country for both taxpayers and tax professionals, according to Kautter. "This summer, the IRS will again be conducting its Nationwide Tax Forums for tax professionals in five cities around the country, where the new tax law will take center stage," he said.

Section 199AFormal published guidance such as regulations and notices, as well as "soft guidance"including press releases and frequently asked questions, will need to be issued to explain various tax provisions under the new law, according to Kautter. A particular area in "critical"need for guidance is the Code Sec. 199A deduction for qualified business income of pass-through entities, Kautter said, calling it a "challenging" area. While Kautter could not provide a specific time frame for when to expect the guidance, he said the IRS is working to develop the guidance as "quickly and expeditiously as possible."

Technical corrections to the partnership audit rules were included in the bipartisan Consolidated Appropriations Act (CAA), 2018 ( P.L. 115-141), which was signed by President Trump on March 23. The omnibus spending package, which provides funding for the government and federal agencies through September 30, contains several tax provisions, including technical corrections to the partnership audit provisions of the Bipartisan Budget Act (BBA) of 2015 ( P.L. 114-74).

Technical corrections to the partnership audit rules were included in the bipartisan Consolidated Appropriations Act (CAA), 2018 ( P.L. 115-141), which was signed by President Trump on March 23. The omnibus spending package, which provides funding for the government and federal agencies through September 30, contains several tax provisions, including technical corrections to the partnership audit provisions of the Bipartisan Budget Act (BBA) of 2015 ( P.L. 114-74).

ScopeThe CAA clarifies the scope of the partnership audit rules. The new rules are not narrower than the TEFRA partnership audit rules; they are intended to have a scope sufficient to address partnership-related items. The CAA eliminated references to adjustments to partnership income, gain, loss, deduction, or credit, and replaced them with partnership-related items. "Partnership-related items" are any item or amount that is relevant to determining the income tax liability of any partner, according to the Joint Committee on Taxation (JCT). Among other things, partnership-related items include an imputed underpayment, or an item or amount relating to any transaction with, basis in, or liability of the partnership.

According to the JCT, the partnership audit rules do not apply to withholding taxes except as specifically provided. However, any partnership income tax adjustment will be considered when determining and assessing withholding taxes when the partnership adjustment is relevant to that determination. Further, the technical corrections clarify that an imputed partnership underpayment is determined by appropriately netting partnership adjustments for that year, and then applying the highest rate of tax for the reviewed year.

Pull-In; Push-OutAlso included in the CAA is a "pull-in" procedure, which allows for modifying an imputed underpayment without requiring individual partners to file an amended tax return. The "pull-in" procedure, if elected, would replace the "push-out" election. A push-out shifts liability to individual partners. The "pull-in" procedure contemplates that partner payments and information could be collected centrally by the IRS. However, the procedure permits the partnership representative or a third-party accounting or law firm to collect the data and remit it to the IRS.

PenaltiesThe partnership adjustment tracking report required in a push out is a return for purposes of failure to file, frivolous submission, and return preparer penalties. Also, the failure to furnish statements in a push-out is subject to the failure to file or pay tax penalties. However, neither an administrative adjustment request nor a partnership adjustment tracking report are returns for purposes of the partner amended return modification procedures.